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Feb 14, 2018

Canopy Growth CEO: 'Skeptical' senators, banks getting onside with cannabis legalization

Canopy Growth CEO: Marijuana bill will make it more difficult to be a criminal in black market


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The head of the nation’s largest cannabis company thinks seeing is believing -- and the key to getting reluctant Canadian senators behind the push to legalize recreational marijuana. 

In an interview on BNN, Canopy Growth (WEED.TO) Chairman and Chief Executive Officer Bruce Linton said he’s hosted a number of members of the upper house at his facilities, and seen a marked change in tone once they see for themselves it’s not a fly-by-night operation.

“They’re doing fact-finding, they want to learn. Frankly, they showed up with their arms crossed, and a bit skeptical and by the time they see the format of production, they can see that this is quite a bit different than how organized crime might be doing it,” he said.

Linton said the newfound acceptance isn’t just limited to Canada’s lawmakers, but also its banks, after BMO Capital Markets helped underwrite a $175 million bought deal financing for Canopy Growth.

“[It’s] a huge change … the week after the bought deal, I went to the U.K.,  and I went around Europe, and I was marketing what we’re doing in Canada. The interest level escalates when you can point [to the financing] and be taken around by a bank,” he said. “Now you’re starting to see them actually do daily banking and full structured services.”

While BMO and CIBC, which led a previously undisclosed credit facility for MedReleaf (LEAF.V), are the only two of the Big Five banks to follow independents Eight Capital and Canaccord Genuity into the cannabis industry, Linton said he expects the rest of the field to soon follow suit.

“The others are now, I think working harder to figure it out,” he said. “I think [they’ve] now struck committees and I don’t think it has anything to do with legalization. I think with the banks, this is a great piece of business that is going global that they kind of looked away from for three years and no longer can.”

That booming business bore fruit for Canopy Growth in the third quarter, where the company unexpectedly turned a profit on the back of a surge in registered patients. The company eked out a profit of one penny per share in the quarter and posted record revenue of $21.7 million, marking 123-per-cent year-over-year top line growth.

Canopy continued to drive down production costs in the third quarter, with the average cost per gram falling 18 per cent, staying below one dollar a gram for the sixth straight quarter.

While Canada won’t allow cannabis companies to produce and sell marijuana edibles until July 2019, Linton said he sees potential for margin expansion once the federal government eases restrictions on the value-added products, including cannabis-infused beverages developed in partnership with one of the company’s largest stakeholders, Constellation Brands (STZ.N).

“What we start with in 2018 will be simple products, where the pricing will be right,” he said. “In the first half of 2019, I think you’ll see a place where we can take our partnership with Constellation … and figure out how do you take a cannabis input, turn it into a beverage and place it in the shop, which is governed by all the liquor authorities?”

“That’s not selling dried cannabis, no one’s lighting a joint, and that I think is going to be a very disruptive product, and there will be a lot more room for margin for both us and the provinces.”